Gilbert company grows algae with hope of profiting from its many uses

Several other companies around the nation have attempted to profit by turning algae into fuel, with varied success.

Sapphire Energy Inc. of San Diego

Unlike many algae companies, Sapphire remains focused on creating fuel replacements. The company formed in 2007 and has four facilities in California and New Mexico. In 2011, it received a $104 million federal award to build an algae-to-energy facility in New Mexico. Finished in 2012, the plant has been in production, and the company received additional private-equity investments and paid off the loan in 2013. The company received a new $5 million grant from the government in 2013 to continue refining the process of converting algae to fuel, and in December it announced a partnership with Phillips 66 to bring production to a commercial scale.

Solazyme Inc. of South San Francisco

Like Heliae, Solazyme initially intended to create liquid fuels from algae, but it has shifted its focus to beauty products, nutritional and food supplements and other products. The company has several large contracts to sell its products for various end uses and one day could pursue replacement fuels, but for now its research is in other areas. In the July-September quarter, the company had $10.6 million in revenue but was not profitable. It lost $29.5 million in the quarter and lost more than $82 million through the first nine months of 2013.

GreenFuel Technologies Corp. of Cambridge, Mass.

This company also focused on making fuel from algae and didn’t make the shift to other markets before going out of business in 2009. The company shut even after raising more than $70 million in investments since 2001 and landing a contract worth $90 million to sell algae greenhouses. The company worked with Arizona Public Service Co. on a project to use the carbon emissions from a Phoenix power plant as nutrients for algae to grow faster. That project was highlighted in a 2007 article in National Geographic magazine. Company officials later reported the algae grew too fast and they had to change their strategy for harvesting.

On azcentral.com

See a video of Heliae Development.

By Ryan RandazzoThe Republic | azcentral.comMon Jan 6, 2014 9:14 AM

There’s money to be made on algae, and a Gilbert company is on a mission to prove it.

Inside a greenhouse operated by Heliae Development, paddle wheels tranquilly push along green-tinted water in a large, oval raceway, gently churning the water and ushering it through a continuous loop used to grow algae.

Once the fast-growing microscopic plants reach a higher concentration in the water, they are piped to the next in a series of greenhouses. In the final pool, the algae is collected to be shipped to buyers who will add it to nutritional supplements, beauty products and fertilizers.

This last step is a key development for the company. Heliae is well beyond proving the company knows how to grow algae, having been working on that ability since 2008. The company now hopes to prove there is profit in such a business.

Heliae recently completed a $13 million, 8-acre demonstration plant to make that point. Heliae officials hope to show farmers and other potential customers that the raceways can grow algae by the ton, and that selling that product can be fruitful. And if that happens, Heliae could be in a lucrative position to sell the multimillion-dollar Volaris algae-growing systems and technology it has been perfecting.

Heliae President/CEO Dan Simon said the endeavor is looking hopeful, with more than $1 million in revenue last year. He has already booked $4.2 million in sales for 2014 and expects more.

“This is a huge milestone for this industry,” Simon said during a recent tour of the plant.

More than $80 million has been invested in the company. If Simon can show the world there is money to be made in algae, he expects acceptance of his industry to grow, and profit to follow.

“The perception of the algae industry is still quite negative,” he said.

In the mid-2000s, algae got a lot of attention as a potential replacement for fossil fuels. Algae grow much faster than traditional crops, can be grown with a high oil content and can be harvested and converted to ethanol and biodiesel. Unlike other plant-based fuels, algae don’t compete with food crops such as corn and soybeans.

But it still is prohibitively expensive to make fuels from algae, and several startup companies that formed under the promise of creating the next alternative fuel have either closed or shifted their focus.

Heliae has equipment on site and has previously turned algae into jet fuel in Gilbert, but those ambitions are on the shelf for now.

Now the business plan is to make enough money selling algae for use in fertilizers and livestock feed and as an ingredient in specialty nutrition supplements and beauty products while advancing the technology to bring the price down. Then, at some point in the future, the systems might be efficient enough to compete with fossil fuels, Simon said.

The specialty products are much more lucrative to produce on a small scale than vehicle or aviation fuels. Although gasoline and diesel might sell for $3 to $4 a gallon, specialty oils used for beauty and nutrition can command $20 for a few ounces.

Simon says Heliae is selling its algae to one nutritional-supplement company, which he can’t disclose, that has products on the shelves at major retailers such as Target. Another customer uses algae grown in Gilbert for cosmetics used by spas at Ritz-Carlton hotels, and a third uses a different strain of Heliae’s algae for a specialty fertilizer, he said.

“Right now, we want to generate revenue from algae products,” Simon said. “We are showing you can make algae and be profitable. We are not too dissimilar from food producers.”

The company has 122 employees. The company has more than 75 patents awarded and more than 300 filed.

In 2014, Simon said, his focus will be on building second and third algae-growing facilities in Europe and Asia, and on raising more capital.

“We want to prove the Volaris system on multiple continents,” he said.

Simon says growing algae is simply a form of precision agriculture. The facility near Germann and Gilbert roads resembles a dairy farm with its large greenhouses and equipment that extracts algae from the water, dries it and packages it for shipping.

The facility does not seem out of place sitting amid fields of more traditional crops.

The building in the adjacent office park is where Heliae chemists and researchers test the algae for purity and work on new products, such as a genetically modified algae that might be used to grow a replacement for colostrum, a form of milk, for children and livestock.

“There’s nothing more adaptable in the world than algae,” he said.

Investment funded

The company, founded in August 2008, grew out of a partnership with Science Foundation Arizona and researchers at Arizona State University’s Polytechnic campus in Mesa.

ASU had developed intellectual property regarding specific strains of algae that could be grown for use in jet fuel, and Heliae licensed that intelligence from the school with funding from the descendents of the Mars Inc. candy, food and pet-care family. Frank Mars is a co-founder of Heliae.

Heliae has raised more than $80 million in venture funding since 2008, with about $30 million coming in the past year.

Simon said the existing supporters remain interested in the project but want to see more outside funding.

Heliae had workers on site at ASU for two years and continues to hire ASU graduates.

But Heliae and ASU separated in 2010 after Heliae moved into its Gilbert facility and began to work on new projects using its own intellectual property that could not be shared on the public research campus, said John McGowen, director of operations and program management for the Arizona Center for Algae Technology and Innovation at ASU’s Polytechnic campus.

“We want to get our inventions out of the lab and into the real world,” McGowan said. “Heliae is a good example of a company coming in and leveraging that in a purposeful way and advancing the field as a whole.”

Benefits to ASU, region

Heliae has moved beyond the initial plan to develop jet fuel and is now using a growing system far removed from what was developed at ASU, but the partnership continues to benefit the university.

ASU received $1.5 million from Heliae during the initial research project, and that was matched by $1.5 million from Science Foundation Arizona. The university also received a combination of cash, royalties and an ownership stake in Heliae for the intellectual-property agreement with the company, though officials declined to disclose the terms.

Working with Heliae also allowed ASU’s research lab at the Polytechnic campus to invest in infrastructure that researchers at the university continue to use even though Heliae has shifted focus away from the university’s research. And ASU also supplies Heliae with algae material grown on-site for the company’s proprietary testing.

“We’d love to replicate the Heliae story over a dozen times,” McGowen said. “The money we got from the research project itself funded faculty and graduate students and post-doctoral (students).”

Perhaps most importantly, the ASU algae-research program was strengthened enough by working with Heliae that it has been more successful at landing government awards for continued research.

Since the partnership with Heliae, the ASU algae researchers have attracted an additional $23 million in state and federal funding for their work, said Charlie Lewis, vice president of venture development for Arizona Technology Enterprises, a limited liability company formed in 2003 to manage intellectual property and to sell technology for ASU.

In 2012, the U.S. Energy Department awarded ASU as much as $8.3 million to establish a network of testbeds to spread information among the algae-research community. The goal is to support the growth of algal fuels. The program is intended to design and conduct long-term trials to produce a standardized way to compare algae strains, growth techniques and processes across regions, seasons and other operational conditions.

The Energy Department has set the goal for creating a pathway to produce more than 1 billion gallons per year of “cost-competitive” algae fuels by 2022.

With Heliae moving away from jet fuel for the time being, it is unlikely ASU will earn any continuing royalties from the company based on technology that originated at ASU. But such deals could be lucrative for the school. Any revenue generated from a technology-transfer license is split three ways, with one-third going to the inventor (even if he or she has left the university), another third going to the inventor’s lab and the final third going to ASU, Lewis said.

And ASU officials consider Heliae’s ongoing success their own, Lewis said, because having successful companies in the local marketplace can attract others like it, which could attract more research-funding opportunities.

“The economic development from companies we help to launch, both in the form of capital raised and all their employees, all contributes to the advancement of the ecosystem here,” Lewis said. “That is as important as the direct financing that comes back to us.”

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